University of Leipzig; CESifo (Center for Economic Studies and Ifo Institute)
The paper investigates large German firms' investing behavior in the pre-1914 gold standard period. After establishing some empirical facts about cyclical dynamics of sectoral and aggregate economic fluctuations for the late 19th and early 20th century Germany, cyclicality at business cycle periodicities in the firms' investment data is analyzed using spectral analytic techniques. For closely half of the firms' net capital formation series regular cyclic structure at classical business cycle frequencies is revealed. Another and noteworthy feature of the sample's firm-level investment series, is the stationarity that close to all series show. We therefore conjecture that it were not the old established, i.e. founded before 1870 and surviving up to 1913, firms that were mainly responsible for the significant and fast growth of the central macroeconomic variables of that time. Our findings rather hint at the fact that these firms' investments, especially in the key sectors like metal and transportation, contributed a non-trivial fraction to the overall fluctuations (around a growth trend) in aggregate investment and GDP. Furthermore, we find by means of ranking methods grounds for lumpiness in the individual capital adjustment processes as well as for investment episodes.